If your business is in its earliest stages or ‘seed stage’– if you are still fleshing out plans and notions around the kitchen table – you are more than likely asking some fundamental questions. Is there demand out there for what we have to offer? If there is, can we meet that demand and reach those customers? Where do we want to get to and, the burning question, how will we cover our costs in the meantime?
The reality is that if you don’t have funds beyond your own resources it won’t be long before your business falters.
Friends and family
Friends and family are the most common starting point for that initial injection of cash. And you shouldn’t be afraid to reach out to your wider network. Think about former bosses or colleagues – people you have worked with; contacts who you met at industry events. Someone who knows you already has much more reason to trust you than the professional investor who doesn’t know you at all. Get legal help to draw up agreements if you can run to it. It will put these early transactions on a sound footing.
Start up loans
If you are over 18 and have a developed business idea, if your business is registered in the UK and have you have been trading for less than two years, you may be eligible for a government-backed start up loan. Loans of up to £25,000 at a fixed interest rate of 6% are available with a repayment period of one to five years. You can register your interest online at www.startuploans.co.uk. You will be contacted direct about the next steps and, if successful, you will be appointed a mentor who will guide you through your early experience as a free part of the service.
Crowdfunded seed finance
Seedrs and CrowdCube are two online platforms devoted to funding early stage businesses. Raising funds in the way involves submitting a proposal – or pitch – to elicit funding from the crowd, which may be made up of individual or professional investors who pledge an amount of their choosing towards the funding target.
Terms and conditions vary. In some cases there will be a third party site that might act as a legal shareholder. In other cases, the site itself will invest a very small amount and continue to monitor the business.
You may find there is a set up fee of around £250 and 5% in fees if the pitch is successful. The speed of investment will depend on how excited investors are by your proposal. Some businesses have raised their targets within days.
Whether you use one or a combination of these options, remember to keep people posted. Use social media to generate interest around your business as it takes flight and to give news about your fundraising efforts. Word of mouth is a powerful force and it is a real possibility that you could find additional backing via these efforts.
This month we’re focusing on helping UK businesses get access to the wide variety of alternative forms of finance available. For most businesses the first port of call is their bank – but what if they turn you down or can’t give you the amount of funding that you need?
Don’t worry – our latest ebook outlines the funding options available to you at each stage of the business lifecycle and one things for sure, it certainly isn’t over just because ‘the bank says NO’.